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Digital infrastructure builder CityFibre has today announced that they’ve reached a crucial UK funding agreement worth £2.3bn (mix of debt and equity). The deal will support the ongoing deployment of their new 10Gbps capable Fibre-to-the-Premises (FTTP) broadband network and also drive a new wave of consolidation.
Just to recap. CityFibre has already deployed their full fibre network to cover around 4.5 million premises (inc. 550k customers) and they’ve long aspired to reach up to 8 million UK premises – representing c.30% of the UK. But their original target of hitting that by the end of 2025 will be missed, and they’ve also been facing some of the same pressures as many other networks (e.g. high interest rates, rising build costs and competition).
In response, the operator has already made some redundancies and shifted their strategy, which sees them focus less on new network builds and more on growth via mergers and acquisitions (M&A), as reflected by the deals to acquire Connexin (here) and Lit Fibre (here). Not to mention putting more effort into commercialisation in order to encourage take-up by consumers, which is where the recent deal with Sky Broadband may help (here).
According to industry analyst James Ratzer – in 2025 and beyond, it’s expected that CityFibre will likely only build FTTP out to c.300k homes per annum organically, largely to meet their state aid backed Project Gigabit contracts. But the operator still aspires to add around 1 million premises each year, which suggests c.700,000 will be coming from the acquisition of other networks; something they’ve been very vocal about (here).
However, the operator’s existing funding had nearly run out, and they needed more in order to deliver on both their existing network expansion and their new consolidation strategy. Suffice to say that today’s agreement is aimed at tackling both of those issues.
What’s in the funding deal
The new financing includes £500m in new equity secured from CityFibre shareholders – Infrastructure at Goldman Sachs Alternatives, Antin Infrastructure Partners, Mubadala Investment Company and Interogo Holding.
On top of that, CityFibre has also agreed a committed £960m expansion of its existing debt facilities, supported by lenders including ABN AMRO, BBVA, Crédit Agricole CIB, ING, Intesa Sanpaolo IMI CIB, Lloyds, the National Wealth Fund, NatWest, SEB and Société Générale. The facility will support their “continued network investment and enable it to rapidly connect hundreds of thousands of new customers“.
Finally, an accordion facility of £800m is also being made available to help drive CityFibre’s continued expansion through the acquisition of full fibre network assets. “This facility will be used to finance the company’s M&A pipeline and cement its position as the sector consolidator,” confirmed the announcement. This is a feature of loan agreements that allows them to increase, as required, the total amount of debt available under an existing facility.
Greg Mesch, CEO of CityFibre, said:
“This round of financing will supercharge CityFibre’s next phase of growth, as we consolidate the altnet sector, accelerate the pace of customer connections and unleash the full power of our market-leading 10Gb XGS-PON network, for the benefit of all our partners, their customers and for the UK economy.
There is huge opportunity ahead for CityFibre and it is testament to the success of the company that we have such strong backing from our lenders and shareholders. This multi-billion-pound investment into critical digital infrastructure will deliver significant benefits across the UK, helping to realise potential and unlocking economic growth.”
Chancellor of the Exchequer, Rachel Reeves, said:
“Today’s announcement shows Britain is attracting billions of pounds of investment, including through the National Wealth Fund, driving growth across British businesses.
Investing in our digital infrastructure is key to ensuring our economy is fit for the future. Through our Plan for Change we’re growing the economy by boosting investment in Britain and working hand in hand with businesses to create jobs, to put more money in working people’s pockets.”
The risk in all this is that consolidating alternative networks tends to be a slow, complex and costly process – particularly with many altnets still holding an inflated idea of their own asset values. CityFibre’s strategy around this thus remains somewhat unproven, and any new funding deal they strike now will be subject to less favourable conditions than they had before (e.g. interest payments will be higher).
Put another way, this may not be the last funding deal they’ll need, which means that some of the same underlying funding challenges could still resurface again in the future. The operator also faces other challenges, such as from the recent instability at one of their largest ISP partners, TalkTalk, which currently accounts for c.150k customers via CityFibre and is struggling in ways that could risk wider harm in the future (here).
Despite this, CityFibre has succeeded in growing a good level of scale and is one of the reasons why established giants, like Openreach (BT) and Virgin Media (O2), have had to accelerate their own FTTP plans in order to avoid losing too much market share. Suffice to say, it’s important not to underestimate the profound impact they, and others, have had on the market and will hopefully continue to have into the future.